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Forecasting the effects of reduced defense spending

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  • Peter Ireland
  • Christopher Otrok

Abstract

Forecasts from a vector autoregressive model indicate that the substantial cuts in defense spending proposed by the Bush Administration in 1991 are likely to reduce GNP in both the short run and the long run. These forecasts hold even if proceeds from the spending cuts are used to reduce the federal debt. The long-range VAR forecasts, in particular, contrast markedly with those of the large-scale econometric models employed by the Congressional Budget Office.

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Bibliographic Info

Article provided by Federal Reserve Bank of Richmond in its journal Economic Review.

Volume (Year): (1992)
Issue (Month): Nov ()
Pages: 3-11

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Handle: RePEc:fip:fedrer:y:1992:i:nov:p:3-11:n:v.78no.6

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Related research

Keywords: Defense contracts;

References

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  1. Sims, Christopher A, 1980. "Comparison of Interwar and Postwar Business Cycles: Monetarism Reconsidered," American Economic Review, American Economic Association, vol. 70(2), pages 250-57, May.
  2. Michelle R. Garfinkel, 1990. "The economic consequences of reducing military spending," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 47-58.
  3. Stock, James H. & Watson, Mark W., 1989. "Interpreting the evidence on money-income causality," Journal of Econometrics, Elsevier, vol. 40(1), pages 161-181, January.
  4. Barro, Robert J & Sahasakul, Chaipat, 1986. "Average Marginal Tax Rates from Social Security and the Individual Income Tax," The Journal of Business, University of Chicago Press, vol. 59(4), pages 555-66, October.
  5. Mark A. Wynne, 1991. "The long-run effects of a permanent change in defense purchases," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Jan, pages 1-16.
  6. B. Douglas Bernheim, 1988. "Ricardian Equivalence: An Evaluation of Theory and Evidence," NBER Working Papers 2330, National Bureau of Economic Research, Inc.
  7. Lupoletti, William M & Webb, Roy H, 1986. "Defining and Improving the Accuracy of Macroeconomic Forecasts: Contributions from a VAR Model," The Journal of Business, University of Chicago Press, vol. 59(2), pages 263-85, April.
  8. Mark Wynne, 1992. "The analysis of fiscal policy in neoclassical models," Research Paper 9212, Federal Reserve Bank of Dallas.
  9. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
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